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GM scales back it alliance with Nikola, an electric truck startup

The Boston Globe logo The Boston Globe 11/30/2020 Neal E. Boudette
a train on a steel track: The General Motors Co. plant in Flint, Mich. © Provided by The Boston Globe The General Motors Co. plant in Flint, Mich.

Nikola, a startup electric truck company that had made a big splash on Wall Street, announced a broad alliance with General Motors in September that promised to give the company critical technology, financial support, and credibility with investors.

But the news was quickly overtaken by claims that Nikola had exaggerated its capabilities, and the founder quickly resigned from the company. Investors were left to wonder whether Nikola was indeed an automotive innovator and whether GM had made an embarrassing mistake in associating with the startup.

After weeks of talks, the companies announced that they still intend to work together, but on a much more limited basis than what they proposed in September.

GM still plans to supply hydrogen fuel cells to Nikola for use in the heavy-duty trucks the startup is developing but has yet to mass produce. But GM will no longer make an electric pickup truck for Nikola or take an 11 percent stake in the company, once valued at $2 billion.

News of the scaled-down partnership sparked a sell-off in Nikola’s stock. The stock was down nearly 27 percent to close at $20.41.

The decline lowered Nikola’s market value to about $8 billion — about a quarter of the value it had just after its market debut in June. At one point, investors valued Nikola at more than they did Ford Motor Co., one of the world’s largest automakers.

The new agreement gives Nikola access to fuel-cell technology that GM has developed but never commercialized. The cells use hydrogen to produce electricity, and some experts consider them a better way to eliminate greenhouse gas emissions from heavy-duty trucks than batteries, which weigh a lot and can take hours to recharge.

“I suspect Nikola needed a deal more than GM needed the deal,” said David Whiston, a Morningstar analyst. “Nikola needs fuel cells for their core business. For GM, one supply deal isn’t a big deal either way.”

GM has plans to produce its own electric pickup trucks, SUVs, and cars. In November, the company said it intended to spend $27 billion on electric vehicles over the next five years.

September’s announcement was widely interpreted as a seal of approval from GM. It helped lift Nikola’s stock and investor confidence in the startup’s ambitious plans to develop heavy trucks and a national network of fueling stations.

But just days after the Sept. 8 partnership announcement, a small investment firm, Hindenburg Research, reported that Nikola and its founder and executive chairman, Trevor Milton, had greatly overstated how much technology the company had developed. The report said that the company produced a video in which a truck was rolled down an incline to make it look as if the company had developed a working prototype. Later that month, Milton resigned.

Weeks after the Hindenburg report, GM said it had not closed its deal with Nikola as planned, and the companies continued to negotiate. The deal they announced Monday was described as “a nonbinding memorandum of understanding.” GM also said that Nikola would have to “pay upfront” for it to expand capacity to produce hydrogen fuel cells.

“Heavy trucks remain our core business,” Nikola’s chief executive, Mark Russell, said in a statement. “By working with GM, we are reinforcing our companies’ shared commitment to a zero-emission future.”

GM and Nikola also said that they would discuss Nikola’s use of a GM battery system called Ultium for fully electric versions of the startup’s heavy-duty trucks.

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